China's new rules on consumer finance to defuse risks, promote consumption

BEIJING, March 20 (Xinhua) -- China's recent new regulations on consumer finance companies will improve market regulation and risk control and let the sector better play its role in bolstering consumption growth, analysts said.

On Monday, the National Financial Regulatory Administration published a series of measures that lifted the access threshold of consumer finance companies, stepped up regulatory rules, and enhanced the protection of consumer rights.

According to the official document, the main investor of a new firm providing consumer loans needs to hold a stake of at least 50 percent, up from 30 percent previously. Its shareholders with related business expertise and experience are also required to have a bigger stake. The minimum level of registered capital for the company is also raised.

Dong Ximiao, a researcher at the Institute for Financial Studies, Fudan University, said the measures came as the central financial work conference held last October called on enforcing "strict admission standards and regulatory requirements for small and medium-sized financial institutions."

Dong said that the policies will help improve the quality of investors and clarify their responsibilities.

The strengthened rules on shareholding, expertise, and registered capital will promote the sustainable development of the consumer finance sector, said Zeng Gang, director of the Shanghai Institution for Finance and Development.

For the orderly development of consumer finance companies, the new measures also limit the loans backed by financing guarantee companies or insurers and cancel their non-main and unnecessary businesses. To protect consumer rights, such lenders are required to carefully assess borrowers' incomes and solvency, clearly inform them of key information such as the annualized interest rate and default liabilities, and ensure no violence and harassment in debt collection.

Consumer finance companies mainly satisfy the small borrowing demand of consumers in a wide range of everyday scenarios, from buying home appliances and electronics to paying for home decorations and rent. Compared to bank loans, such lending is more flexible and accessible.

According to regulations, a consumer's maximum credit is limited to 200,000 yuan (about 28,000 U.S. dollars). However, in practice, the average ranges from 10,000 yuan to 50,000 yuan for different companies, with a term of 6 to 12 months.

China's first consumer finance companies were established in 2010, and there are currently 31 such lenders nationwide. At the end of 2023, their asset scale and loan balance both exceeded 1.1 trillion yuan. Last year, more than 370 million customers borrowed from them.

As China's consumption demand will be further released amid an upward economy, the improved regulatory rules will promote consumer finance companies to play a more important role in boosting consumption and expanding domestic demand, Dong said.